What Are the Major Alternative Fuels Interests of Oil Majors?

As the alternative fuels industry diversifies and scales up, financing is always the key to technology commercialization. While several sources of financing drive the whole industry forward, we investigate the trends of corporate financing from oil majors, based on a non-exhaustive database of over 1,000 deals and partnership engagements from 2000 through September 2014. With the focus on financial engagement, we only look into the private placement, equity stake, joint venture (JV), mergers and acquisitions (M&A), other than general partnerships. For example, we counted BP’s bioethanol JV plant with British Sugar, but we didn’t include BP’s research work with the Energy Biosciences Institute. We then drew a graph based on the investment counts (rather than invested companies) of the seven most activate oil majors in our database, namely, Shell, BP, Total, Valero, Chevron, Petrobras and Reliance. Particularly, repeated investment activities on the same company would be counted as multiple. We further sorted the investment by six core technology families – algae, biomass to sugar, catalysis, crop development, fermentation (and enzyme development), and pyrolysis/gasification.

From our analysis of their activities in the alternative fuels industry, we find that:

BP leads the investment frequency in a variety of technology families. Particularly, it has a strong focus on the crop development by transgenics and breeding, with repeated investments made to Chromatin (client registration required) and Mendel Biotechnology (client registration required). It also continues investing on biomass to sugar technology including to handle cellulosic biomass, such as REAC Fuel (client registration required).

Shell is not a fan of crop development, but has a wide coverage on other technologies. For example, it invested on multiple rounds and formed a JV with Iogen (client registration required), but terminated the JV in 2012. Then the oil giant formed partnerships and JVs with Codexis (client registration required), Cosan, and Novozymes to continue its interests in cellulosic ethanol. Shell shifted its shares in Codexis to Raizen, its ethanol JV with Cosan and “formed the largest sugar and ethanol company in the world”. It also partnered with Virent (client registration required) on the biomass catalytic conversion to produce renewable gasoline, and Cellana (HR BioPetroleum) on algae biofuel. Moreover, Shell Foundation also funded Husk Power System (client registration required) on gasification development.

Total and Chevron are the most active corporate investors in the fermentation domain. Total did the private placement on the IPO of Gevo (client registration required) and formed a JV with Amyris (client registration required) with both focusing on corn and sugar cane feedstocks. Gevo is focusing on isobutanol fermentation and Amyris is doing the bioconversion to produce isoprenoids. On the other hand, Chevron invested in Codexis (client registration required) and LS9 (client registration required) with its concentration on the genetic engineering, while LS9 was acquired by Renewable Energy Group in early 2014 (client registration required). All invested companies by these two giants are diversifying their revenue streams with drop-in fuels, specialty chemicals, and/or drugs in downstream markets.

Velero has a strong focus on the drop-in fuel production either by bioconversion or catalysis. Valero owns 10 facilities in the U.S. with over 1,000 MGY corn ethanol capacity. However, it is also interested in cellulosic ethanol with its funding of Qteros, Mascoma Corporation (client registration required), and Enerkem (client registration required). Additionally, the focus on waste feedstock can be reflected by its investments in the ill-fated Terrabon (client registration required), which was focused on wet waste-to-gasoline.

Investments of oil majors in developing countries are more constrained by local resources and policy drivers. For example, Reliance is investing the algae technology developers such as Algae.Tec (client registration required), Aurora Algae (client registration required), and Algenol Biofuels. Petrobras is concerned with fuel production from sugar cane or bagasse, such as BTG-BTL (client registration required) and BIOecon, which combine the feedstock advantage and local policy driver. Other oil majors not listed in the graph, such as Chinese oil majors, Sinopec and PetroChina (CNPC), are shifting their focuses from food ethanol to cellulosic ethanol and coal-to-ethanol, which is responding to the call of the Chinese government to discourage the food ethanol industry (see the report “Fueling China’s Vehicle Market with Advanced and Coal-based Ethanol” — client registration required.)

Less active oil majors in this space include ExxonMobil and ConocoPhillips. They only made sporadic investments – such as Synthetic Genomics (client registration required) by ExxonMobil and ADM by ConocoPhilips. Additionally, ExxonMobil mobile recently teamed up with Iowa State University to research pyrolysis.